Health Start Scheme

Patricia Hewitt: I, and my hon. Friends, will promise to continue voting for record investment in the NHS—in Milton Keynes and every other part of the country. The PCT in Milton Keynes is getting more money than ever before and there will be more fast growth in its funding next year. Yes, people have to make some difficult decisions to ensure that they give patients the best care within available resources. As spending for those of the hon. Gentleman's constituents who have cancer is below average, while spending on urgent care is above average, I hope he will support his local PCT in ensuring that it rebalances that spending, puts more services into the community, and increases investment, for instance, for patients with cancer.

Patricia Hewitt: I entirely agree. We have written a big cheque for the NHS, but it is not a blank cheque; it never has been and it never will be. Of course, we need to look at the introduction of independent sector treatment centres and we are doing so, with the strategic health authorities and others, in each region, to ensure that the centres are properly integrated in the local NHS and continue to give NHS patients better care, but also faster care.

Patricia Hewitt: I would have to refer the hon. Lady to what the right hon. Member for Witney (Mr. Cameron) has recently said. He is not prepared to wipe out overspending any more than I am. If the hon. Lady believes, as does her right hon. Friend, that decisions should be in the hands of NHS professionals, I wish that she and other Conservative Members would support local NHS professionals when they make proposals and decisions to give better care to patients, with better value for money. Since her party voted against increased investment in the NHS, I am not prepared to take lectures from the hon. Lady on how that money should be spent.

Rosie Winterton: My hon. Friend is right to say that that kind of supported education programme is extremely important. The work done by Diabetes UK, together with some of the regional teams that we have set up through the Department's diabetes national service framework, is making a real difference in many areas of the country. I know that, particularly in her area, diabetes clinics, patient information and the work of the diabetes networks have been effective in putting in place some of the education that she refers to.

Mark Hunter: As ever, Mr. Speaker, I am grateful for your guidance. I was just coming to the question. Given that the Government are asking local councils to do more and more with less and less, which services that local councils currently provide does the Minister think that they no longer need to provide? Will he give us an answer, instead of giving councils more and more responsibilities to discharge with existing funds?

Phil Woolas: With respect, if the hon. Gentleman will give the House an undertaking not to distribute a  Focus leaflet attacking tax or council tax increases, I will give a straight answer to his question. The fact is that neither Her Majesty's Treasury nor the council tax payers in his constituency or mine are aware of the mystical tree on which he thinks money grows. Stockport borough council has had an average increase for 10 years of 4.5 per cent. in real terms. Admittedly, that includes the schools budget, but a real terms increase has been provided for other council services. Politics is about making those hard choices, for which he does not seem to think that he should take responsibility.

Brian Binley: The Minister will know of the problems faced by Northamptonshire county council, as he met an all-party delegation last year. He will know that we cut 600 full-time equivalent jobs, and that we cut deeply into services. This year, we have a £45 million shortfall on a balanced budget, because of the support grant that he has announced, which we knew about last year. We can shave the employment structure to the bone, but we are still left with an £18 million shortfall that can only be dealt with by service reductions. How can the Minister reconcile that scenario with his claim that his party is improving local government services?

Neil Turner: I welcome the extra £525 million that has gone into the neighbourhood renewal fund. That money is extremely useful, and, as I am sure my hon. Friend knows, the excellent Labour-led Wigan city council uses it very well.
	In his statement my hon. Friend made no mention of double damping, which was raised by my right hon. Friend the Member for Birkenhead (Mr. Field). I think most people would welcome damping, or at least understand the need for it; what we cannot understand is why there should be additional damping before the final damping in the formula.
	Replying to my right hon. Friend the Member for Birkenhead, my hon. Friend said that he could not assess how much the amount would be. The Wigan treasurer estimates that, for Wigan, it will be £8 million, as against the extra £4 million that we have. Will my hon. Friend give careful thought to the issue of double damping and try to resolve it, so that local authorities can address the needs of their social services departments?

Phil Woolas: I hope I am not being churlish or disrespectful, but I say again that it would be nice to get a thank you for the floor, especially as Bromley council is part of the London Councils association which argued for the floor in the first place. But notwithstanding that, the point that the delegation made was on the pockets of poverty, which a Member has raised. What I have done is to make available all the specific grants that are within the remit of my Department and portfolio today. The Department for Education and Skills today also publishes the dedicated school budget for schools. Surety and predictability of funding are an important part of our policy, and next year I will be able to announce three years of funding.

Graham Stuart: Today's  East Riding Mail reports that the new East Riding of Yorkshire Primary Care Trust wishes to close the bedded units in Beverley, Driffield, Hornsea and Withernsea. Does the Minister accept that such financially driven cuts must be stopped, or else the consequences will be dire not only for patients but for local authority budgets?

Edward Balls: I am grateful to the right hon. Gentleman for his intervention; hopefully, he will make a more substantive contribution in due course. I expect that there will be plenty of time in this debate for various points to be made by Members in all parts of the House. I very much look forward to the right hon. Gentleman's contribution; I hope that it will be as revealing and interesting as yesterday's was.
	My statement of 13 September was prompted by concerns about the potential implications of a possible takeover bid for the London stock exchange. At that time, a bid by NASDAQ, the US stock market, for the LSE was still only a possibility. As Members will know, NASDAQ has now announced an offer for the LSE, so with a bid on the table, it is important that we move swiftly. Our aim, with the co-operation of both Houses, is for the Bill to gain Royal Assent as soon as possible, consistent with proper parliamentary scrutiny. With support from all parts of the House, it should be possible to achieve that before the NASDAQ bid reaches its important point.
	Before I turn to the Bill's detail, I want to set out the wider context. London today is widely seen as one of only two truly global financial centres in the world. It is the location for 70 per cent. of the global secondary bond market, for more than 40 per cent. of global derivatives, and for more than 40 per cent. of cross-border equities trading. London today has more foreign banks than any other financial centre, and it is the location for the headquarters of six of the world's 10 largest international law firms. Based on its global reach and its reputation for free, fair and open global markets, London has in recent years been attracting business and listings from around the world. We are determined to keep it that way.
	I believe that international businesses have located in the City because of four great strengths: our commitment to the rule of law and the highest professional standards; the skills and flexibility of the work force and our ability to attract talent from around the world; our long-standing tradition of openness and internationalism—a global approach to competition and ownership that has allowed the City to innovate and to respond to new challenges; and the FSA's highly respected principles-based and risk-based approach to regulation, which has been put in place over the last decade. I know that the whole House will join me today in paying tribute to the many men and women from across our country and abroad who work hard in the City and in our other UK financial services to build the City's reputation and to contribute to its strengths.
	However, we are not complacent. Back in May, when I first became the Minister responsible for such matters, concerns were expressed to me about the effects of a possible takeover of the London stock exchange by a company based outside the UK, and the threat that that might pose to London's attractiveness as a place for international listing and wider business. Some Members will know that the UK has for some years been open to overseas investment in UK exchanges. The London international financial futures and options exchange, ICE Futures and virt-x are all owned by overseas companies. Such overseas interest in UK exchanges in part reflects our principles-based approach to regulation, which has been flexible enough to accommodate the desire of exchanges to innovate in recent years, but rigorous enough to ensure the probity and integrity of our markets.
	However, following NASDAQ's interest in acquiring the LSE, I have discussed the implications of such a change in ownership widely in recent months, including with all the interested parties themselves. I have made two points absolutely clear. First, the Government are neutral with respect to the nationality of the ownership of the LSE. It has been put to me that the right approach is Government intervention to protect the LSE from foreign ownership. I reject that argument. Such intervention would fly in the face of the traditions that have underpinned the City's success over the past 20 years. A policy of protecting "national champions" would damage, not bolster, the interests of London and the UK. So the Government do not have and will not express any views about the commercial merits of the proposed NASDAQ takeover. It is for the current owners of the shares to decide whether to accept or reject the offer. But secondly, our interest in the ownership of the LSE is that it should not affect the existing regulatory regime under which the exchange and its members and issuers operate. We are determined to act to protect our domestic regulatory environment, founded in both UK law and EC directives, that has made the City a magnet for international business. If a company operates in London, it should be regulated in London.
	Following those discussions, in which a range of possible approaches were put to the Government, we concluded that the only way to provide the assurance to London and the UK was through primary legislation, by making changes to part 18 of the Financial Services and Markets Act 2000, which provides for the recognition of investment exchanges and clearing houses.
	Let me turn to the detail of the Bill. The provisions will confer a new and specific power on the Financial Services Authority to veto rule changes proposed by UK- recognised investment exchanges and clearing houses that would have an excessive regulatory impact. By excessive we mean that the proposed rules would impose a regulatory burden on a user of the exchange or clearing house, or the wider community, that could not be justified by any regulatory benefits, or whose effect on those users or the wider community would be disproportionate—and obviously that would not include anything already required by UK or EU law.
	The new powers will not put the existing provisions for regulation of the investment exchanges and clearing houses into question. They will apply only to future changes. But they will apply to all UK-recognised investment exchanges and clearing houses from the outset, not just after there has been a change of control. They will apply to all recognised exchanges and clearing houses, not just those that are in foreign hands.
	The Bill also provides for necessary processes and safeguards. The exchanges and clearing houses will be required to notify proposed changes to their rules and other regulatory provision—by which I mean any guidance, policy, practice or arrangement made by an exchange or clearing house—to the FSA. The FSA will have up to 30 days to decide whether to call in a proposal for further examination. If it calls in the proposal, the FSA will have to set a period in which it will consult publicly about the proposed rule change. The FSA will then have a further 30 days after that consultation period has ended to decide whether to veto the proposed rule change.

Edward Balls: The hon. Gentleman makes an important observation. The answer is no, not in our experience. I do not think that any other financial centre has such an open and global market for ownership and exchanges, as well as a regulatory regime that its authorities are so keen to protect. There is something particular about not only our open approach, but also our regulatory regime, which means that we are keen simultaneously to allow ownership changes if shareholders desire them and to retain that back-stop power.
	As I said, in the recent consultations, we considered the type of thing we could do; for example, issues arise in the case of the proposed, or rumoured, New York stock exchange takeover of Euronext, which would have implications for London, owing to Euronext's ownership of LIFFE—the London International Financial Futures and Options Exchange—although regulatory issues do not arise in quite the same way. We looked at the corporate governance changes that were being proposed and discussed with authorities in other European capitals and concluded that those arrangements would not give us sufficient comfort. As we looked around the world, and at past experience, we concluded that as no model would give us comfort, other than taking power directly in law, that was the appropriate thing to do. However, it is my understanding that there is no precedent for what we are proposing.
	After the detailed scrutiny of the Bill on which we are about to embark, I hope that Members will conclude that the guiding principles I set out earlier are being fully respected in the legislation. First, the principle that we should be blind to ownership of exchanges is being protected; we are entrenching London's reputation as a global financial centre determined to attract talent and ownership from around the world. Nothing in the legislation has any consequence for the nationality of the ownership of UK exchanges. It will make overseas ownership neither easier nor more difficult and I am confident that any potential foreign investor who wants to come to the UK will not be deterred. We are also upholding the principle that it is right for the Government to act to protect and enhance the UK's proportionate and risk-based regulatory regime.
	I believe that the Bill will deliver that objective and can do so without imposing unnecessary regulatory burdens on the exchanges. Yes, we are intervening. However, we are intervening and legislating not to impose regulation, but to avoid excessive regulation being imported into the UK. By outlawing the imposition of any rules that might endanger the proportionate and risk-based regulatory regime that underpins the City's success, I believe that we will help to ensure that London continues to be a magnet for international business and new listings from around the world. The Bill will therefore continue to bring new investment and new jobs to the UK, so I commend it to the House.

Mark Hoban: First, let me make it clear that we support the Bill. Indeed, there is widespread support for it across the financial services sector and few measures on financial regulation have gained the support of so many interested parties. We have sought to co-operate with the Government to ensure that the Bill receives a swift passage through the House today. We recognise the importance of the timing and want to place on record our acknowledgement of the spirit of co-operation between the Government and Opposition Front Benchers in a rare outbreak of consensus and working together. It could be said that a similar spirit of consensus was not the hallmark of yesterday's debate.
	We welcome the powers given to the Financial Services Authority to veto changes to the rule books of exchanges, particularly where they are seen to be excessive. As the Economic Secretary said, the Bill is before us because of widespread concern that acquisition of the London stock exchange could lead to changes in its rule books that could damage the competitiveness of UK capital markets. If a US exchange were to acquire the London stock exchange, US regulations—especially Sarbanes-Oxley—would be imposed on UK-listed companies.

Mark Hoban: The hon. Gentleman is trying to make an important point. He is trying to find out whether there is any opportunity under the Bill for a Sarbanes-Oxley measure to be introduced, but I hope that it will not enable such a provision to be made. He should remember that, although the conditions that I mentioned are in place, the FSA seeks to ensure that regulation is proportionate and not excessive in its impact—so there is not leeway, exactly, but a wider context for such considerations.

Mark Hoban: The hon. Gentleman is right that those things did not happen in the UK. We did not suffer from the extensive financial scandals that afflicted US markets, partly because of the strength of UK regulation. A principles-based approach to regulation, with an emphasis on risk, puts in place the right framework to prevent the reoccurrence of those scandals. Too often, financial scandals arise because of a prescriptive, rules-based approach that requires people to tick boxes. We must therefore learn lessons from the American experience, and we must be careful not to repeat the mistakes that were made in the US in the past.
	May I turn to the four conditions set out in proposed section 300A? People using the Bill must have a clear understanding of its import, and the purpose of the provision is to maintain the competitive advantage of the UK financial services sector relative to other global markets. We must look carefully in Committee at the language of proposed subsection (4)(b) to make sure that that message is clearly conveyed to people who are interested in regulation in the UK. The hon. Member for Wolverhampton, South-West asked the Minister about the lack of a backstop date in proposed section 300D. I am sure that, after consulting stakeholders, the Financial Services Authority will suggest an appropriate date. However, will the Minister or the Financial Secretary confirm that the FSA believes that the 30-day period in which it may deliberate on the changes is sufficient to consider fully the impact of any rule changes? Returning to the collapse of Enron and WorldCom, how long would it have taken people to discern the long-term damage that Sarbanes-Oxley would have inflicted if it had been introduced in UK capital markets? It is therefore important that we make sure that there is sufficient time for the FSA to consider fully the impact of any rule changes.
	In conclusion, Sarbanes-Oxley has provided a great boost for the City, as US markets recognise, which is why, from Hank Paulson downwards, there has been pressure to water down the provision. It should be a warning to the Government and to Governments across Europe that while one piece of legislation can strengthen our competitive position, another can seriously damage it. We must pay great attention to the conditions that make the UK financial services sector a great success. It is not just about regulation—it is about the people and businesses based here, the tax system, infrastructure and many other factors. If the UK is to thrive, we must look at what we can do ourselves to ensure that it remains globally competitive in the financial services sector, rather than relying on others to make mistakes from which we can benefit.
	The Bill gives the FSA the power to protect the competitive position of our capital markets, but as the provisions indicate, it cannot protect exchanges and clearing houses from excessive regulations imposed here in Westminster or in Brussels. Although it protects UK capital markets from one aspect of extra-territoriality, it does not protect them from all aspects. We welcome the Bill and hope it will be effective, but we do not see it as the end of the story when it comes to maintaining the competitiveness of the UK financial services sector.

Kerry McCarthy: I am pleased to have the opportunity to speak in the debate. I welcome my hon. Friend the Minister's opening remarks, which confirm that the Bill is intended not to impose additional regulatory burdens on the City, but to protect the light-touch system of regulation that has served the City so well since we set up the Financial Services Authority.
	I also welcome my hon. Friend's reaffirmation that the Government recognise that the City's strength lies not just in its sensitive and light-touch approach to regulation, but in its internationalism and receptiveness to outside influences and outside investment. I am pleased to hear confirmation that the Bill is not intended to restrict foreign ownership of our recognised exchanges and clearing houses, that the Government are neutral on the matter and will remain neutral, and that the Bill is intended to safeguard the risk-based, principles-based approach that has made London such an attractive place for international financial institutions to do business, and its exchanges such a magnet for listings from around the world.
	Far from imposing a new burden, the Bill will, by giving the FSA what I am sure will be a judiciously exercised power of veto, ensure that excessive, disproportionate or unnecessary regulation is not permitted. I am also pleased to hear the Minister confirm that the Bill is not about micro-managing the exchanges, and that safeguards will be built into it so that the FSA can allow exchanges to make minor changes to their rules without interference.
	Many reasons have been advanced for the City's position as one of the world's two most successful financial centres—some would say the most successful. Such factors include the English language, our geographical position between the US and Asian time frames, our skilled work force, and the attractions of London as a place in which to live and do business. But the Bill encapsulates the two main reasons for London's success: its internationalism, and its approach to regulation.
	Britain has always been ahead of the pack as far as globalisation is concerned. Its financial sector has for 300 years or more been internationally focused and outward looking. Unlike other financial centres that developed primarily to serve their own domestic markets, the City's phenomenal growth has been due to its role in financing world trade, rather than financing our indigenous industries. Indeed, as Professor Anthony Hopkins said, the industrial revolution happened independently of the City of London.
	In the past three decades or more, since the collapse of Bretton Woods, London has prospered as a financial centre not just by capitalising on its traditional strengths, but by embracing liberalisation and exploiting the advantage offered it by protectionist or fiscally restrictive regimes in other financial centres. We have spoken a great deal today about Sarbanes-Oxley, but in the 1970s the London Eurobond market flourished because of decisions taken in the USA.
	In 1979, the scrapping of exchange controls by the Thatcher Government freed up the flow of capital in and out of the country, removing a key obstacle to globalisation and cementing the City's position as an international hub. Big bang, 20 years ago last month, changed the City for ever, by relaxing the rules preventing foreign ownership of British financial institutions and leading to an influx of overseas investment. Of course, there has always been a foreign element in the City. The names of what we would regard as some of the most traditional City institutions, such as Rothschild's, Warburg's, and Kleinwort Benson, make it clear that they were established by immigrants, and they have now been taken over by yet more foreigners coming in.
	With big bang we saw what is commonly dubbed the "Wimbledonisation" of the City—that is, its domination by foreign players. In particular, US banks, prohibited by Glass-Steagall from owning US securities houses, took the opportunity to move into London in force, and provided the City with capital for almost unlimited expansion.
	This all means that London is now a truly international financial centre, handling foreign transactions worth £560 billion a day. It is the place where more international mergers and takeovers are arranged than anywhere else, and more cross-border transactions take place than anywhere else. It has the biggest foreign exchange, swaps and international insurance and reinsurance markets in the world. The City has more foreign banks than any other financial centre—264 at the last count. It has almost a third of the daily turnover in the world foreign exchange market. It has over 40 per cent. of the world's OTC derivatives trade, 70 per cent. of the Eurobond market, 40 per cent. of the world's turnover in foreign-listed equities trading, and the fastest-growing share, currently 20 per cent., of global hedge fund assets. It has taken a long time to establish a regulatory system which can cope with that new order. Most people accept that the fragmented, predominantly self-regulatory regime established at the time of big bang was a messy compromise that ended in failure.
	If we look back at the 1980s and the early 1990s, we can all recite a litany of City failures and scandals—Johnson Matthey, British and Commonwealth bank; Bank of Credit and Commerce International, Barlowe Clowes, Lloyds of London, Brent Walker, the Guinness affair, the Blue Arrow affair, Roger Levitt, Asil Nadir and Polly Peck, Maxwell and the Mirror Group pension funds, and, of course, Nick Leeson and the ignominious downfall of Barings bank.
	At the time of the Barings collapse, I was employed in Abbey National's Treasury division. At the time, Abbey National had a derivatives trading joint venture with Barings, which, I suspect, it would not care to remind people about these days—I hasten to add that it had nothing to do with Barings futures trading activities in Singapore. I was called into the Barings head office in London on the Sunday when Barings went under to help to sort out the mess with the Bank of England and the chief executives of the top UK banks. I remember that day well, because it was the day of my constituency Labour party's annual general meeting. I was chair of constituency at the time and had to give my apologies, which raised more than a few eyebrows among my comrades in Luton, North Labour party who until then had no idea what I did for a living. I am glad to say that the Labour party has come a long way since then.
	Barings management did not know what its traders were up to, the regulators did not know that the management did not know what the traders were up to, and the Government certainly did not know that the regulators did not know that the management did not know what its traders were up to. The old boy network comprehensively failed. It may be tempting fate to say that I do not think that such a scenario could happen now. Of course we should never be complacent, but the Financial Services Authority and the relationship between the Government and the regulators inspire a great deal more confidence now.

Vincent Cable: It is a pleasure to follow the hon. Member for Bristol, East (Kerry McCarthy), whose presentation was all the more authoritative for being based on her own experience.
	The Economic Secretary said at the outset that there is all-party consensus on the Bill, and I certainly do not intend to oppose it. I am not yet entirely persuaded that it is necessary, but that need will no doubt emerge in the course of the debate. When I see Conservative and Labour Front Benchers, together with most luminaries in the City and even Mr. Ken Livingstone, romping in the same bed, I tend to suspect that something not entirely wholesome is taking place.
	I think that the characterisation of American financial regulation—I am not an expert, unlike the hon. Member for Bristol, East—has been a little overdone and rather unhelpful, given that the Americans are aware of the problems and are dealing with them. It was presented as the financial equivalent of avian flu against which we must put up defences.
	Let me go over a few areas of undoubted common ground. First, it is true, as the Economic Secretary said, that the City is a crucially important part of the British economy. Ten per cent. of gross domestic product is generated from financial services, although not all of those are based in the City—some are provided by retail banking throughout the country. It is particularly important for employment.
	Secondly, we all agree that financial services must be regulated flexibly—but, as the hon. Members for Edmonton (Mr. Love) and for Wolverhampton, South-West (Rob Marris) said, flexibility must be balanced against investor protection and protection against systemic failure. There is more than one dimension to consider.
	Thirdly, we all accept that we are dealing with global markets that move very fast and that this is not an area where nationalism or national ownership are appropriate concepts. Competition takes place not between countries but between sets of rules. People in the City often employ the imagery of Wimbledon to describe what they are trying to achieve, saying that they are hosting an event and that it does not matter whether British people win it. That is quite a comforting image in some respects. However, there are problems with the Wimbledon comparison. Will Hutton has observed that it is probably because we have Wimbledon that we produce such dreadful tennis players, unlike smaller European countries. He also argues that having an international financial centre may be to the detriment of domestic companies' growth and innovation. I do not entirely buy that, but we have to look at both sides of the argument.
	I part company with the proposals over two issues. First, we should be more honest about what this legislation is for. It is presented as being completely innocuous, but its proper title should be something like the "Investment Exchanges and Clearing Houses (Americans Keep Out)" Bill. That is essentially what we are talking about. The Minister and the Conservative spokesman have said that there is no objection to takeovers or to foreigners per se, but it is clear that a barrier is being raised and that powers are being created to deal with takeovers from two particular sources, which just happen to be the two biggest exchanges in the world: the New York stock exchange and NASDAQ. Because they are so big, they have the potential to launch a successful takeover in London.

John Redwood: The hon. Gentleman has completely misunderstood the proposals. The Bill is not trying to block American takeovers. It might better be entitled the "Protection of Your Interests (Having Taken It Over)" Bill. It is saying to the American exchanges that we will not let the American Government mess up the asset if they acquire it.

Vincent Cable: No doubt the Economic Secretary will get an opportunity to reply later. Let me develop my scepticism further.
	One has to question the motives for establishing such a defensive mechanism. Usually, hostile takeover bids are resisted by a company's management. Clara Furse, the manager of the London stock exchange, has said clearly that her exchange is not for sale. That is her strategy. She does not want to sell. The price of shares in the London stock exchange has been ramped up considerably, creating barriers, and its management undoubtedly want to resist a takeover. Why would the British Government want to create a mechanism to make it easier to protect the insider interest in this case?
	Let me move on to the argument about which the Economic Secretary is exercised, which goes back to the principle and basic economics of exchanges. My starting point would be that an exchange is a network or utility that works best because everybody is a participant in it, as in the case of the electricity grid or bank clearing system. The productivity of exchanges, however, has risen rapidly—in London, by 6 per cent. in the past 20 years—and their monopolistic structure tends to lead to much higher profits and fees, which are resisted by the users.
	Two sets of countervailing pressures are emerging, one of which is competition. In the United States in particular, small exchanges are being launched with low costs. In principle, the new European regulation encourages competition, which, in the course of time, should bid down costs. The Turquoise consortium of investment banks appears to have that objective. The problem of obtaining gains through competition, however, is that it breaks up the network, losing efficiency and potentially raising costs.
	That raises the question of the other route to contestability in the market, which is through takeovers. That is the reason for growing pressure from the New York stock exchange, NASDAQ, Deutsche Börse, Macquarie bank and others to enter the market. The question is whether that is a problem. The problem posed is that one or other such acquisition—if we accept that the worry is not just about the Americans—might succeed in importing into the UK unhelpful forms of regulation, particularly those prevailing in the United States.
	The Conservative spokesman made a genuine attempt to explain the transmission mechanism for that, and quoted one example, the registration of hedge funds. As I understand it, however, that case was introduced at the behest of the SEC and has subsequently been dropped, although I am sure that he knows a lot more about that than I do. I think that that is the only concrete case that we have of that type of extra-territoriality being introduced through the exchange mechanism, but there may be many others. The right hon. Member for Wokingham is shaking his head. It is important to understand how this could happen, why it is such a threat in practice, and why the Bill is necessary to prevent it.

Vincent Cable: What the hon. Gentleman says is absolutely true. It suggests that there is a self-regulating process, which makes it even more difficult to understand why British legislation is necessary.
	Let me take the argument a step further. Let us suppose that we are talking about the potential implications of NASDAQ's taking over the London stock exchange. Why, in any circumstances, would it want to bring American regulation with it? Presumably—the Minister made this point indirectly—it is coming here to pick up listings that it has been unable to attract in the United States, and would strongly resist any attempt to import American regulation through the stock exchange system. What are we trying to protect ourselves from?
	Another point made very well by the hon. Member for Fareham is that although extra-territoriality is clearly a problem, this is not the most appropriate way of dealing with it, or even directly relevant to most aspects of it. An appalling example of extra-territoriality in recent months is that of the NatWest Three. Taking British employees of a British company to an American court for an offence that they committed in the United Kingdom is real extra-territoriality. There is a problem with British companies that happen to be listed in the United States being pursued in Britain for things that they have done in the United States, and the Bill will not protect against that. If extra-territoriality is to be dealt with, it will have to be dealt with through joint negotiation with the United States. Whatever the virtues of the Bill, it does not deal with the extra-territoriality problem.
	It is being suggested that there is something lethal about the Sarbanes-Oxley Act. Certainly everyone with whom I have discussed it in the City is worried about what might happen if those five pieces of American legislation entered British law. The hon. Member for Wolverhampton, South-West tried to raise a fundamental question: what is the problem, and why is the legislation so difficult and iniquitous?
	Let us return to basics. The Sarbanes-Oxley law was introduced in the wake of Enron and WorldCom. It dealt with a variety of issues, which included investor protection but also accounting procedures. When it was referred to the American Congress, which covers a wide spectrum—no one could accuse American Congressmen of being isolated from business interests and opinions—the Senate backed it by 99 votes to nil, while the House of Representatives backed it by 423 votes to three. The overwhelming consensus, extending from the most libertarian Republicans to the most diehard leftists of the Democratic party, was that the legislation was sensible. Distinguished people such as Alan Greenspan spoke up for it strongly—although they have subsequently acknowledged that aspects of it are a problem, notably section 404. The vast majority of it is uncontentious, and perhaps helpful.

John Redwood: Does the hon. Gentleman not accept that listings in America have declined while in London they have risen mightily because of this ham-fisted legislation? We are very lucky that the Americans had it. Can he not understand that the crimes that were alleged against the senior executives at Enron were all crimes under the law as it stood before the Americans decided to legislate again? What happened in respect of Enron was a matter of enforcement not of inadequate law, and they responded to it wrongly.

David Gauke: I add my words of support for the Bill, which is a sensible proposal, although I have a couple of queries. I support the Bill because on the issue of globalisation, of which we have heard much today, it answers two questions correctly. The first is on ownership and national champions. Despite the comments by the hon. Member for Twickenham (Dr. Cable), I agree with the points made by the Economic Secretary and my hon. Friend the Member for Fareham (Mr. Hoban) that this is not an issue of economic nationalism. The ownership of institutions in the City is not important. Indeed, there are far more important issues at stake. At a time of growing economic nationalism—the chairman of the CBI, Sir John Sunderland, in remarks reported this morning, was critical of France, Spain, Italy and the US for their economic nationalism—it is pleasing that we have a consensus between the major parties that focusing on ownership is a mistake. Indeed, the City has done well out of Wimbledonisation, whereby we provide the venue and the rest of the world provides the players, and that is to be welcomed.
	The second question that arises from globalisation concerns the difficulty that countries have in achieving the appropriate level of regulation. There is often a race to the bottom, as the jurisdiction with the lowest level of regulation is seen as the most attractive to businesses. That argument is grossly overstated. Globalisation punishes inappropriate, disproportionate and bad regulation, and Sarbanes-Oxley is an example. As several hon. Members have pointed out, Sarbanes-Oxley has resulted in some companies listing in the UK rather than in the US. However, good regulation is necessary. If a country gets the balance right—and we can argue that this country has done so, especially compared with the US in this area—it does well. The race to the bottom argument is therefore weak.
	Countries should retain their own regulatory control, as the Bill suggests, because otherwise the pressure is towards regulation. If globalisation is about economic integration, it also pushes countries towards regulatory integration. Co-operation between regulators is at times appropriate, but too much regulatory integration would be dangerous. One example is the extra-territorial approach adopted by the US on occasion, which is a concern. To return to the points made by the hon. Member for Twickenham, the concern is not that a US exchange will wish to impose additional regulatory burdens on those companies listed on a UK exchange that becomes a subsidiary of the US exchange. The concern is that US legislators will attempt to impose additional regulatory burdens on those companies listed on the LSE or AIM. Extraterritorial legislation regulation is one way in which Governments have attempted to deal with the supposed race to the bottom.
	Another way—and this was touched on by the hon. Member for Bristol, East (Kerry McCarthy)—is supranational regulation, and we see that with the European Union. Some of the arguments that can be used for the approach set out in the Bill—that UK regulation should continue to apply and that we should not be influenced by overseas factors—also apply to European legislation, as the hon. Lady acknowledged. The issue is about getting the balance right.
	I have two specific concerns about the wording of the Bill. The first is the point that I made to the Economic Secretary during his speech earlier. For argument's sake, let us suppose that NASDAQ buys the LSE. Then, prompted by NASDAQ, presumably for reasons of US law, the LSE proposes a rule change to implement Sarbanes-Oxley. The FSA considers that change—whether it is excessive or disproportionate—and blocks it. The next step would be a challenge and judicial review. At that point, the regulatory objectives that apply to the FSA come into play.
	The FSA has the regulatory objective of protecting consumers, and rightly so. However, it does not have the regulatory objective of protecting or maintaining the competitiveness of UK financial services. Does that make the FSA vulnerable to judicial review in such circumstances? I assume that the Treasury has sought advice on that point, but perhaps the Financial Secretary could address the issue when he winds up.
	The issue could have been addressed in a couple of ways. First, section 5 of the Financial Services and Markets Act 2000, which relates to the protection of consumers, could be amended to add a carve-out that makes it clear that any requirement that the FSA deems to be excessive under section 300A is not an appropriate measure for the protection of consumers. The other—and perhaps preferable—way to deal with the issue would be to treat the desirability of maintaining the competitive position of the UK as a regulatory objective, instead of an also-ran, second-tier point. I assume that the Treasury has considered that option and rejected it for various reasons, but I raise the point none the less.

Andrew Love: I welcome this Bill, which safeguards the regulatory regime through powers to curb disproportionate regulation. I emphasise the word "safeguard", for the benefit of the hon. Member for Twickenham (Dr. Cable). We need to have this measure on the stocks, so that it can be used when necessary.
	There is no doubt that the Bill will help to secure the UK's continued success as a financial centre, but why is it being brought in now? To understand that, we must look at the backdrop to its introduction. All speakers so far have commented on the increasing internationalisation of the City and its institutions. Since the London stock exchange was converted from being a membership organisation, there has been interest from foreign buyers. First was the Deutsche Börse in 2004, then the McQuarrie bank—whose structure no one really understands—in 2005. This year, of course, NASDAQ has continued to pursue its quarry, and we understand that a formal bid has been made.
	However, it is not only the LSE that is subject to internationalisation. The LIFFE is already owned by Euronext, and ICE Futures and other organisations and exchanges are already owned by overseas companies. Indeed, Euronext may well be taken over in the near future by the New York stock exchange. Other hon. Members have observed that there could be new entrants to the market, given the proposal from seven investment banks to create a new European trading platform.
	In addition, there have been significant difficulties in other jurisdictions, especially in the US, with the result that New York has been very much affected. No one so far has commented on the article in yesterday's  Financial Times entitled "Big Apple's Glory Days Passed", or on the report entitled "Down on the Street" in last weekend's edition of the  Economist, which focuses on the challenges to Wall street's assumption of global superiority as a capital market.
	There is no doubt that there is an air of doom and gloom about New York's ability to compete internationally. That was summed up in a recent article by Mayor Bloomberg and Chuck Schumer, the Senator for New York state, entitled "Learn from London". However, we need to look more carefully at the reasons for that decline in competitiveness, and the American press is full of articles trying to describe what has been happening in recent years.
	No mention has been made in the debate about the tougher immigration controls that exist in New York, which are affecting its ability to tap expertise from around the world. They are also limiting that centre's ability to bring people together on a short-term basis, and the result is a real effect on the operation of the New York market. Some people in the US think that New York has been slow to innovate, and anyone who looks at the front page of the  Wall Street Journal will know how slow that innovation can sometimes be.
	In addition, a culture of litigation exists in the US that does not exist here. The SEC undertakes very aggressive litigation, and indeed the newly elected Governor of New York state built his reputation on aggressive prosecutions in the market place. However, the major focus of concern in America has been on the cost of regulation. In that regard, London has a major advantage, in that it has a principles-and risk-based regulatory structure with a light touch. That has played a significant role in its success.
	The success of London is worth examining. Financial services make up 8 per cent. of our economy—12 per cent. if we include business services. As was mentioned earlier, the sector has been growing at 10 per cent. a year, with 300,000 people employed directly and an unknown number indirectly. Moreover, it is not often appreciated that the sector employs 100,000 people in Scotland. Another 100,000 are employed in the Leeds area of Yorkshire, although they work more in business services than in financial services.
	London is the only major challenger to New York as a global financial centre. The debate has already touched on London's capacity in foreign exchange dealing, with more than 40 per cent. of the global trade in foreign-based equities. Interestingly, 75 per cent. of the top 500 US companies have a base in London. That is an important consideration, and mention has been made of the cluster effect, whereby expertise in legal, business and finance services are brought together to achieve the success that I have outlined.
	London accounts for an increasingly large share of world activity in financial and other services. Although it is well behind New York and some other centres in hedge fund trading, London's share of the market is growing all the time. The same is true of syndicated loans and last year Europe overtook the US in the corporate debt market.
	The hon. Member for Twickenham spoke about IPOs, but I think that he got it slightly wrong. There has been a seismic shift in that market in a relatively short time. He was right to suggest that the move predates the Sarbanes-Oxley rules, but the IPO volume in New York used to be five times bigger than it was in London. Even so, London overtook New York in that market last year, and many people on the other side of the pond are very worried about that.
	The regulatory framework is incredibly important, but other factors are at work in the successes that I have described. We look for people with the highest professional standards, and we work hard to attract the best talent available. Europeans regularly come to London to learn how our financial services operate. We are open and transparent in much of what we do. As has already been said, more international banks are registered in London than anywhere else and a similar internationalism can be seen across the whole market.
	We have to recognise the impact of those principles on the success of the City and it would be counter-productive to reverse them. We have to ensure that we do not appear to be trying to frustrate or oppose foreign international ownership of our institutions. That is a cardinal principle and I very much support the Economic Secretary's clear statement of it today. The Government have to remain neutral on ownership; there is significantly more international ownership in London than in any other marketplace, which has been of great benefit to us.
	We also have to recognise that consolidation and integration in financial services may—only may—threaten the light-touch regulation that has been the hallmark of the City and of the FSA since it was set up. As I have said before, evidence suggests that that light touch gives the City a significant advantage over other marketplaces. Indeed, excessive regulation threatens the possibility of a retreat offshore. We have already discussed that point this afternoon, so I shall not go into it. What is most important is that we ensure that the legislation will protect the integrity of London as a global financial centre.
	The Bill also responds to the concern, about which we have had quite a debate, that the acquisition of City institutions may bring extra-territorial application of regulations. We have talked in particular about Sarbanes-Oxley. In my view, that would extinguish London's present regulatory advantage, because it would provide additional onerous regulatory requirements, and we have asked questions about that. The internal control report, which is part of Sarbanes-Oxley, seems to be the focus of greatest concern in terms of the legislative changes introduced under that Act. It is clear that there has been a considerable hike in compliance costs as a result of the measure.
	The Government have already considered some aspects of Sarbanes-Oxley in some detail and concluded that they would be disproportionate, although, interestingly,  The Economist refers to the cost-benefit of the introduction of greater regulation. Of course, one study will say one thing, while another says something else, but the import of the studies carried out so far appears to be that at the lower end of the market—up to $250 million—there is a disbenefit and that the benefit begins to increase the larger the company becomes. The alternative investment market may be the biggest beneficiary of our decision to resist that additional regulation, as appears to be happening.
	I welcome the power in the Bill to veto excessive regulation and indeed the framework to ensure that the FSA does not get involved in the day-to-day commercial judgments of exchanges. That is extremely important; exchanges have to be left to carry out their business. The Bill also rejects micro-management of the rule books and the vetting of every rule change. There must be a broad-brush approach—a simple veto power when disproportionate regulation is being considered.
	We have to enshrine in the legislation the fact that our exchanges remain open to overseas ownership, and we must send that message clearly. It is an important principle that the City has always upheld.
	Putting all those measures together, this simple Bill will provide the safeguards that we require and will, when necessary, ensure the continuation of the light-touch regulation that has been such a success in the City. I commend it to the House.

Mark Field: Saved not by the bell but by you, Mr. Deputy Speaker. Thank you very much indeed. Given my earlier intervention, I guess I was asking for that comment from the hon. Lady.
	In a nutshell, the Bill ensures that the FSA will be able to prevent recognised investment exchanges and clearing houses from adopting regulatory changes that it regards as disproportionate to the regulatory objectives proposed. The underlying concern is that otherwise the internationally competitive position of the UK-based financial services industry in globally competitive markets may be damaged. The protection of the competitive position of London investment exchanges that may in future be acquired by overseas shareholders is the main purpose of the Bill.
	Naturally, that brings into the equation two other issues to which several Members have referred. The first is the principle of overseas control. In fact, the City of London is already internationally owned, staffed and managed—a process that accelerated rapidly after the 1986 big bang. Legitimate concerns have been expressed on both sides of the House about how sustainable that would be in a massive economic downturn.
	Clearly, there was a recession in the early 1990s, which hit the City of London as it hit many other parts of the British service industry. There was also grave concern that by not joining the euro at the beginning of this century, Britain could find its competitive advantage in London undermined. That has not come to pass. Equally, however, we should not be complacent about the longer term, while we should rejoice about the fact that the City remains very strong in spite of the fact—perhaps even because of it—that overseas ownership allows flair and innovation from all corners of the globe to play an important part in the London market.
	Secondly, the issue of the limits of protection in the Bill has also been drawn to my attention. My reading—perhaps it also takes us back to the thoughts of the hon. Member for Twickenham (Dr. Cable)—is that in the event of NASDAQ's bid for the stock exchange proving successful, we cannot provide protection against actions potentially in the US or in British courts by aggrieved US investors in LSE-quoted securities or, indeed, by high-profile district attorneys wishing to make a name for themselves. We have had a broad-ranging debate about the effect of Sarbanes-Oxley and it is now clear that, given the concerns evident in the US market, there has been a rowing back from it.
	I hope that we can take the opportunity provided by the Bill to make the case once again for the pursuance of a minimum regulatory regime, especially in view of foreign membership as a fact of City life. We need to remember that innovation, flair and light-touch regulation have been the watchwords for many of the great successes in the overseas and outward-looking global financial markets in which London has played an important part over recent centuries. We should ensure that the UK authorities are able to regulate to the lightest possible degree and avoid the micro-management of the financial markets, to which other hon. Members have referred, irrespective of their ownership of the exchange in question.
	I believe that that is the intention of this small but important piece of legislation. I welcome it as a positive step forward, which has certainly been welcomed by the City of London corporation in my constituency. It is wise to look carefully into all aspects of regulation and the way in which the FSA operates. We cannot be complacent. I detected from the Minister's earlier comments that with the additional powers given to the FSA in 1997, we had somehow been able to ward off all the problems that had arisen from Enron, WorldCom or the litany of previous scandals in this country that were outlined earlier by the hon. Member for Bristol, East. We should always remember that there will be crooks in any market and we should not be overly complacent that, in putting a new regulatory framework into place, we have somehow made ourselves immune from any such nefarious behaviour.
	I welcome the Bill and hope that after rapid progress on Report and Third Reading it will be on the statute book before too long.

John Healey: I beg my hon. Friend's pardon. He is a long-standing and currently serving member of the Treasury Committee, and he demonstrated not only the expertise that that Committee has built up, but his personal expertise about the financial services and markets in both the UK and the US.

John Healey: My hon. Friend the Economic Secretary has indeed, as he explained to the House, had conversations with the leading figures responsible for the two US exchanges. They have confirmed to him that they see no obstacle to their interest in the London stock exchange in the content of the Bill. I want to make it clear to the hon. Gentleman that the issue is not one of protecting business, but one of safeguarding the regulatory approach that we have in London, which is defined and controlled by the FSA.
	The hon. Member for South-West Hertfordshire (Mr. Gauke) alighted on a couple of legal points, particularly in relation to clause 1 and the factors that the FSA may take into account under proposed new subsection (4). If he will forgive me, those points may be better dealt with in the next stage of the proceedings, particularly in relation to amendment No. 8 in the name of the hon. Member for Fareham.
	We all have an interest in the Bill, but the hon. Member for Cities of London and Westminster (Mr. Field) is really the only Member of the House with an authentic constituency interest in its content. He clearly has an interest in the future competitiveness of the City of London, as he explained. He rightly argued the importance of a light-touch, principles-based approach to the regulatory regime. The Bill reflects that.
	There were two questions—first, from the hon. Member for Fareham and, secondly, from my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) in an intervention—on the timings in the process that the FSA will be responsible for. The hon. Member for Fareham asked whether the 30-day period would be sufficient for the FSA to consider the impact of any proposed rule changes and then make a decision about whether to call in such proposals. In drafting the Bill, we consulted the FSA. It makes its supervisory decisions independently, within the framework of the Financial Services and Markets Act 2000. In drafting the Bill as we have, we believe that it strikes the right balance between giving the FSA sufficient time to consider the potential impact of proposed rule changes and ensuring that there is not unnecessary delay or uncertainty in the system.
	My hon. Friend the Member for Wolverhampton, South-West is quite right to make an observation about the lack of specified time limits for the representations in the Bill. He probably would have found that in the explanatory notes, as well . [ Interruption. ] My hon. Friend the Member for Edmonton says that that is if my hon. Friend the Member for Wolverhampton, South-West got to the explanatory notes. In my experience, my hon. Friend goes first to the explanatory notes. I have never been involved in a debate on a piece of legislation in which he has not scrutinised the explanatory notes in extreme detail. He is correct to say that the FSA will be able to set the period for representations. The reason why is that it is important that there is sufficient time for careful scrutiny in what we regard as the likely rare event that the FSA decides to call in a regulatory provision. However, as was set out in the letter from the chief executive of the FSA, the FSA will use that power in a way that is consistent with its principles-based approach to regulation. I should also explain to the House that that is consistent with other consultation powers under the Financial Services and Markets Act.
	I turn to the concerns that the hon. Member for Twickenham worried away at in his contribution. He questioned, first and foremost, whether the Bill is necessary. Although all the recognised investment exchanges and clearing houses have reservations about the detail of the Bill and will welcome the scrutiny that the House is providing, the Joint Exchanges Committee thinks that the Bill is necessary. It states:
	"We all appreciate and support any initiatives that protect UK regulatory standards from extraterritorial interference."
	The London stock exchange thinks that it is necessary. It states:
	"we are very supportive of the plans to give the FSA additional powers to veto any attempts to introduce excessive or disproportionate regulations that would impair the City's ability to compete for global equity markets business."
	The CBI thinks so. It says that it
	"Seems clear that all this is highly advantageous".
	The Association of British Insurers also thinks so. It tells us:
	"We believe it is very positive that the government has demonstrated clear political will to combat creeping extra-territorialism".
	It is reasonable to pose the question—as the hon. Gentleman did—of why any commercially run exchange would want to damage its own business by excessive regulation. However, the owners of an exchange or clearing house can come under a variety of pressures to change their regulatory provision and rules and those pressures may not always have a commercial motivation or a commercial source. Competition may not always be effective in challenging or controlling those pressures.
	The hon. Gentleman's second question was: why is existing legislation not sufficient? I assume that he had in mind EC regulations and the Protection of Trading Interests Act 1980. The existing legislation could be used only if an overseas authority sought to impose its national requirements directly on a UK exchange or clearing house in respect of its UK activities. In contrast, if an overseas owner were subjected to pressure under its home state law or regulations to secure that a UK investment exchange or clearing house was operated in practice in accordance with that state's law, the existing European regulation and the Protection of Trading Interests Act could not prevent lawful instructions being given by the foreign owners. The Bill, however, will allow for all regulatory provision to be assessed so as to prevent regulation that is excessive in the UK context from being made, whatever its source.
	We need to ensure that the regulatory provision of key providers of investment exchanges and clearing houses remains appropriate in all circumstances and that it reflects the proportionate, risk-based approach set out in UK and EU law. That is why we are introducing the Bill. I hope that my hon. Friend the Economic Secretary and I can reassure the House that the Bill will achieve those important objectives and will do so without imposing an unnecessary burden on exchanges and clearing houses. I look forward to further debate and to support—I hope—from both sides of the House on Second Reading and in subsequent stages.
	 Question put and agreed to.
	 Bill read a Second time, and committed to a Committee of the whole House, pursuant to Order [this day].
	 Bill immediately considered in Committee.

Stewart Hosie: I agree with the Economic Secretary, particularly in his scepticism about amendment No. 1, which, as I understand it, simply seeks to bring the clause into effect when there is a change of governance. He is right that there should be consistent application of the rules in all circumstances. The hon. Member for Wycombe (Mr. Goodman), speaking for the Conservatives, got it right when he said that the issue was not economic nationalism but the national interest, which includes jobs.
	Brief reference was made to Scotland, where 127,000 people are employed in banking, finance and insurance. Five of Scotland's top 10 businesses are in that sector. Back home, it is one of the industries in which one can reach the very top of one's career, working in a global company with a genuine international reach. As has been said, it is not only the City of London, but the Financial Services Authority's light-touch regulatory approach to the sector, that has been the success. We support the clause, and we support taking a consistent approach, whether or not there is a change of governance. I shall keep my contribution short, but I should just say that I agree with the description given earlier: the paradox is that by giving more power to the FSA, we ensure that a light touch remains. The global reach of world-class companies, and 127,000 jobs in Scotland, can be protected and enhanced by the measure.

Mark Hoban: As I said earlier, this is a series of probing amendments, and we have had a useful exchange. First, on amendments Nos. 2 and 4, the Minister is absolutely right, and the letter from John Tiner, to which we referred earlier, should reassure investment exchanges and clearing houses about the way in which the FSA will seek to use the powers. Of course, the consultation process that will take place over the next few months to determine the detail of the rules for call-in will reinforce the message set out in that letter. That should give exchanges and clearing houses further reassurance about the way in which the new powers will be used.
	I now turn to the amendments about change of control. Perhaps there is a second paradox on display: it took a potential change of control in an investment exchange to flag up the issue of the freedom that exchanges and clearing houses enjoy in determining their own rule books. Although historically that has been seen as a strength, clearly, in future, challenges could emerge that would change that strength into a problem. By taking the necessary powers now, having been prompted by the potential change of control, we are ensuring more certainty over the regulatory environment in the UK. In a sense, even if the acquisition of the London stock exchange by NASDAQ does not go ahead, perhaps the prospect of it has done us a favour by highlighting the issue. It led us to introduce this legislation quickly, so perhaps in the long term it has done UK financial services a great favour by making us look at the rules once more, and making us think about how the rule book will develop. I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.

Mark Hoban: I beg to move amendment No. 8, in clause 1, page 2, leave out line 5 and insert
	'need to maintain the competitiveness of United Kingdom markets,'.
	On Second Reading I sought to highlight the opacity of the wording of proposed new section 300A(4)(b). The purpose of the Bill is to protect the global competitiveness of UK capital markets, but it is not entirely clear how that fits in with the four factors in subsection (4). I am sure that the Minister will come up with good reasons for the opaque wording of the provision, but the wording should make the thrust and purpose of the Bill clear. My amendment would give the Bill a degree of clarity, so that no one could be in any doubt about its purpose and what it seeks to achieve.
	As for the precise wording of proposed new subsection (4)(b), financial markets are global and activity is mobile, but that does not necessarily lead to the conclusion that regulators should veto rules that would have an impact on the competitiveness of UK capital markets. Indeed, some might say that because of the mobility of activity there should be a single set of global rules, not different sets of rules for different jurisdictions. That is not my view, but the wording of subsection (4)(b) is not sufficiently clear to inform readers about the precise purpose of the Bill and what it seeks to protect. The wording is rather bland and neutral, and my amendment would make it slightly crisper and more focused, to get the point across.
	That echoes comments made by my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke)—he may well speak on this point, too—about how the wording fits in within the regulatory objectives of the Financial Services and Markets Act 2000, in which competitiveness is not one of the regulatory objectives. It is relegated to as a factor to which the FSA should "have regard". By anchoring the Bill in the context of much clearer and sharper wording, we will lose any ambiguity about what the Bill seeks to achieve, and we will perhaps give practitioners and regulators a much clearer sense of direction.

Edward Balls: I welcome you as Chair of the Committee, Mrs. Heal.
	The drafting of the provision is subtle, and there is no disagreement between Government and Opposition about what we are trying to achieve. We have talked about the paradox of regulating to make sure that we have less regulation. Another paradox is that we wish to protect our regime—the measure is an act of protection—so that we can achieve a non-protectionist approach to ownership. We wish to be open and global rather than protectionist. The amendment is carefully worded, as it refers to
	"the competitiveness of United Kingdom markets."
	It does not refer to institutions, firms or individuals. I accept that we judge the success of a global approach to financial markets by the breadth and the depth of the market, rather than the market share of a particular UK-domiciled firm. A less global, more protectionist view could be characterised as one in which we judge the successful competitiveness of the markets according to whether a domestic firm has a growing market share, even if that leads to a decrease in the depth and richness of global markets.
	We are concerned that if we accept the amendment, its language for competitiveness could be misinterpreted, and it could take us down the protectionist route. I accept the intention behind the amendment tabled by the hon. Member for Fareham (Mr. Hoban), but I fear that reference to the "competitiveness" of UK markets could be mistaken for a reference to protecting the market share of UK firms, individuals and institutions, which is contrary to what we are trying to achieve. The reference in proposed new subsection (4)(b) to
	"the global character of financial services and markets"
	captures our more open, global approach. The amendment would not add anything to what we are trying to achieve, and we fear that it could be misinterpreted in some circles.
	The hon. Member for South-West Hertfordshire (Mr. Gauke) was concerned about extra-territoriality, and he asked whether the reference to the global character of financial services meant that the FSA would be forced to accept excessive regulatory provision outside the UK by a UK-recognised body. The test in the Bill for excessive regulatory provision is whether such provision extends beyond UK or European Community law, and whether it fails to pursue a reasonable regulatory objective or is disproportionate to such an objective. That test cannot be levelled up just because a foreign jurisdiction applies an excessive standard that it characterises as global. It is not for the foreign regulator to make the judgment, and we will not level the test up. It is for the FSA to make the judgment under the Bill and the rules that it sets. We do not believe, therefore, that there is such a risk.

David Gauke: The provision states:
	"In considering whether a requirement is excessive, the Authority must have regard to...the global character of financial services and markets".
	I am grateful for the clarification that the Economic Secretary has provided, but the definition of "excessive" is linked to the global character of financial services and markets, so regulation in another jurisdiction may therefore be relevant in reviewing that character.

David Gauke: I should like to return to an issue that I have raised a couple of times, as I am concerned about vulnerability to judicial review in circumstances with which the Bill is designed to deal. For example, in a takeover of the London stock exchange by a US exchange, a rule could be proposed and the FSA could seek to block it. Under clause 1, the FSA would consider whether
	"the proposed provision will impose a requirement on persons affected"
	and whether the requirement is "excessive". Proposed new subsections (3) and (4) provide guidance about what is excessive. If the proposal
	"is disproportionate to the end to be achieved"
	the FSA can block it. That wording is on the right lines, and I do not wish to query it. If that test is met, proposed new subsection (2) states that
	"the Authority may direct that the proposed provision must not be made."
	If there is a challenge to that direction, it will be examined on the basis of the Financial Services and Markets Act 2000, regulatory objectives and the second-tier matters to which the FSA must have regard. The judicial review will not necessarily be conducted on the basis of what is contained in the Bill—that is, the definition of "excessive".
	Put simply, the first test, the "excessive" test, is whether the rule is disproportionate. The next test is whether the rule is appropriate to secure the relevant regulatory objective, which is the protection of consumers. I question whether it is possible that a particular rule change might fail the test set out in subsections (2), (3) and (4)—that is, it might be excessive because it is disproportionate, as defined in the Bill—but the direction made by the FSA would nevertheless be correct, given the objective of securing the appropriate degree of protection for consumers.
	As the hon. Member for Wolverhampton, South-West (Rob Marris) suggested earlier, many of the provisions are designed to protect consumers. My argument is that a rule may be appropriate for the protection of consumers under the FSA test set out in the Financial Services and Markets Act 2000, because the protection of consumers is a regulatory objective, whereas the desirability of maintaining the competitive position of UK markets is not. That was an issue when the Act was passed.
	A measure might meet one of the two tests, but not both. In those circumstances, the very outcome that the Bill is designed to prevent—judicial review—may be available to a US exchange or to the London stock exchange. As I mentioned earlier, there are two ways of addressing that. One is to make competitiveness a regulatory objective. The other is to narrow the definition of protection of consumers in this limited context. The hon. Member for Wolverhampton, South-West raised concerns about the protection of consumers. In this narrow circumstance, to be consistent with the rest of the Bill, there may be an argument for considering that point. I would be grateful for the Economic Secretary's view and his reassurance that the two stages of the test do not raise issues that need to be addressed.

Rob Marris: I am grateful to my hon. Friend. I shall check  Hansard, but the term has been used from the Opposition Front Bench and, I think, by my hon. Friend. "Light touch regulation" is a phrase that has been used, and that rings little alarm bells for me. I wanted some reassurance from the Minister, and I have some.
	Until the hon. Member for South-West Hertfordshire spoke in the stand part debate, there has been little discussion of consumer protection and shareholder protection, which I have mentioned in interventions. Can the Economic Secretary clarify whether the phrases in clause 1(3)(b)(i) and (ii)—
	"it is not justified as pursuing a reasonable regulatory objective"
	or
	"it is disproportionate to the end to be achieved"—
	encompass consumer protection and shareholder protection, particularly the latter,
	"disproportionate to the end to be achieved"?
	If an investment exchange or a clearing house proposed rule changes that the FSA might deem to be excessive, would consumer and shareholder protection be considered if the investment exchange or clearing house stated that the end to be achieved through the tightening of its rules was greater consumer or shareholder protection?
	I am not sure whether "reasonable regulatory objective" would encompass consumer or shareholder protection. That is part of the equation that we must examine. Like other hon. Members, I want London to continue as a thriving premier international market, but I want protection for individual shareholders and consumers and for businesses and organisations, not only because that is right in moral terms, but because London will not continue to thrive as a premier financial location without that platform of regulatory control, so that those who might invest in that market do not fear losing their shirts because of poor regulation. I hope the Economic Secretary can deal with those issues.

Edward Balls: Today, I had lunch with the US Treasury Secretary, Mr. Hank Paulson, who shared a platform two weeks ago with the chairman of the Securities and Exchange Commission, Mr. Christopher Cox. I think that they both share my analysis of the current dangers of the Sarbanes-Oxley regime, which is that the way in which it has been implemented is both burdensome and insufficiently risk-based and that therefore it does not achieve the initial intention. That is why the FSA, with US Treasury support, is currently consulting on how the implementation of the Sarbanes-Oxley Act and the wider corporate governance regime could be enhanced, reformed and in some way lightened in order that it can become more risk-based in the future. I am happy to rely on the expertise of the US authorities rather than commenting on the sensibleness or otherwise of the regulatory regime.
	Finally, the hon. Member for Fareham (Mr. Hoban) has asked whether we have inadvertently come across a flaw in the current regime, or at least that we have had the benefit of realising the need to act, because a change of ownership might allow us to take a power to block excessive or disproportionate rule changes without any change of ownership. However, at no point has the FSA put it to me that it has concerns about the current rule books of the current exchanges or changes to those rule books. In the initial discussions in May and June, no one suggested jumping in to impose a new burden on existing exchanges. As I understand it, that fear did not exist within the FSA. We have looked in detail at how to address that concern, and the only fair way to do so that is legitimate and that applies across the piece would be to cover all exchanges, which is the approach that we are taking.

Rob Marris: I want to make a few brief remarks, first on the deemed refusal periods in proposed new sections 300C and 300D, in lines 8 and 28 on page 3 of the Bill. The hon. Member for Dundee, East (Stewart Hosie) referred earlier to planning law, and I am sure that hon. Members will be familiar with the concept of deemed refusal in planning law. In England and Wales, although I am not sure about Scotland, if the local authority does not make a decision within five weeks—it used to be six weeks—it is deemed to be a refusal. There are similar duties on the FSA in the Bill, and I congratulate the Government on putting them in to try to speed up the process of getting agreement to rule changes so that it is not burdensome for business.
	I want however to take up a point made earlier by my hon. Friend the Financial Secretary regarding the explanatory notes to the Bill. He was helpfully trying to clarify the intervention that I had made on my hon. Friend the Economic Secretary about the missing link in the middle of the process. This relates to what I call the representation period, in contradistinction to the consultation period. The consultation period is what the regulatory body will have; the representation period will be set by the FSA, and is set out in lines 19 and 20 on page 3 of the Bill.
	The reason I am raising this matter is that the explanatory notes do not say—because the Bill does not say—how long the representation period should be. Note 14 on page 4 of the explanatory states:
	"Section 300D...sets a period within which the FSA must take a decision about a proposal".
	But it does not specify the number of days. My understanding is that the Bill could be amended in the Lords and I would urge my hon. Friends the Ministers to consider introducing an amendment to line 20 on page 3 of the Bill, so that proposed new section 300D(2)(c), which now reads
	"specifying a period during which representations with respect to that question may be made to it",
	would continue with the words "which period shall not exceed 60 days". Similarly, in line 21, proposed new section 300D(3) reads:
	"The Authority may extend the period for making representations",
	and I believe that it should then say something like "by no more than 28 days".
	I appreciate that different proposals will have different gravity, and that the FSA might need longer for some than others, but proposed new section 300D(3) already contains the provision to extend what I call the representation period. So the Bill contains a representation period, with an unspecified number of days, and the ability to extend that period, again by an unspecified number of days. Yet in line 39 on page 2 of the Bill, proposed new section 300C(2)(a) defines the initial period as one of 30 days. So the Government are clearly not averse to putting a numerical or diurnal value on that period, but that is not the case for this middle bit, the representation period.
	I would like reassurance from the Minister either that a specified period will be put into the Bill or that clear guidance will be given to the FSA on this matter. Otherwise, the FSA could decide to take six months, and a change in rules that a regulatory body deemed necessary—it would not go through all this rigmarole if it did not deem it necessary—could get held up for rather a long time. The FSA might say, "We do not have the resources to deal with this", or "We do not think it is that important, so we will set a long representation period." Conversely, if the regulatory body wished to make an extremely important change as a matter of urgency, the FSA might say, "This is a very important change, so we must have a long representation period in the middle, because we need to consult so many people and do so much work on it." I urge the Minister to have another look at that missing link in the middle, the representation period, and I hope that amendments can be tabled in another place to specify the number of days. Alternatively, I would like reassurance that strong guidance will be issued to the FSA on that point.

Edward Balls: My hon. Friend has made a most interesting point, and admission. During the passage of the Finance Bill, many people believed that its explanatory notes had been written by him, so for him to point out a drafting error made by others is novel.
	We have specified a 30-day period, which will apply from the notification by an authority that it is making a rule change, which will allow the FSA to consider that rule change. If the FSA made no judgment during the 30 days, the rule change would go through by default. However, proposed new section 300D(2)(c) deals with what we believe will be the unusual circumstances in which the FSA calls in a regulation and considers disallowing it. We expect such cases to be the exception rather than the norm. We mentioned earlier, in reference to the Sarbanes Oxley case, the importance of not repeating the same mistakes by rushing in too fast. My guess is that the markets and the exchanges might consider it an advantage that the FSA has the discretion to choose the period over which it consults, so that it does not make a wrong decision.
	If we feared that the FSA was likely to take a disproportionate, heavy-handed or costly approach to the implementation of this power, we might have reasons to be concerned. But, as John Tiner's letter makes clear, the FSA will use the power only if it is justified as being proportionate, if the benefits exceed the costs, and only after consultation. The letter also says:
	"As you know, we exercise our supervisory decisions independently within the framework of the principles of good regulation set down"
	in the Bill. I do not believe that there is a need for the House to fetter the discretion of the FSA in this matter by arbitrarily curtailing the length of consultation that it might want to take, given that there might be circumstances in which it would want to take more time. We know that it would be motivated by a desire to be proportionate and to ensure that no unnecessary costs would be incurred.

Edward Balls: My hon. Friend is absolutely right. This will all become much clearer when the FSA consults on the rules that will apply in this area, the provision for which is made in the Bill. We want to make it clear to the exchanges that, in the majority of cases relating to rule changes, even if a rule requires consultation under the FSA's rules, that consultation will normally happen in a speedy manner. There might, however, be exceptional circumstances in which the FSA calls in a rule and wants to ensure that its judgment is right. In those circumstances, it is not necessary to fetter its discretion. There is a principled reason for specifying 30 days in one part of the Bill but not to fetter its discretion on such a rare occasion.
	My advice to my hon. Friend and the House of Lords is to think carefully about whether we need to impose extra regulatory burdens on the FSA in such a way. We should trust the good intentions of the FSA as set out in John Tiner's letter, and allow it, in exceptional circumstances, to take the time that it needs to make the right judgment. On that basis, I commend the clause to the House.
	 Question put and agreed to.
	 Clause 2 ordered to stand part of the Bill.
	 Clauses 3 and 4 ordered to stand part of the Bill.

Edward Balls: I beg to move, That the Bill be now read the Third time.
	Let me start by thanking you, Madam Deputy Speaker, and hon. Members on both sides of the House for the detailed and substantive debate that we have had on all stages of the Bill this afternoon. We have addressed many of the concerns understandably expressed by some parts of the City on the detail, and have shown that we have thought through the clauses. Our wide-ranging debate has established—I said at the beginning that I hoped we would—that there is a consensus about how the national interest should apply in this case.
	First, the national interest is to preserve the global and open approach to ownership in the City of London, which has been the hallmark of the City not just for the past 10 years but since the big bang and before. We have all agreed that the right position for Britain, from the point of view of investment, jobs and the long-term future of the City, is to welcome foreign ownership and investment from around the world, including into our exchanges, and not to try to establish protectionist barriers.
	Secondly, the principle has been established that it is right and legitimate for Government to intervene to protect our principles-based and proportionate regulatory regime. We are intervening not to regulate but to ensure that we prevent excessive regulation being imported into the UK, and not to make sure that we have a protectionist or narrow view of the City's future but to make sure that the global, outward-looking City can continue to prosper in future.

David Heathcoat-Amory: Somerset is again a target for local government reorganisation. The Liberal Democrat-controlled Somerset county council voted to apply for unitary status. That means that it wishes to abolish the five existing district councils and consolidate all power, finance and services at county hall in Taunton. That would create the biggest unitary authority in the country, with a population of more than 500,000 people. I and my hon. Friend the Member for Bridgwater (Mr. Liddell-Grainger)—who I am happy is present—believe that that would create a remote, unwieldy and undemocratic structure. Furthermore, the costs of reorganisation would create another burden for the long-suffering council tax payers of Somerset.
	Unfortunately, it seems that the Government have been beckoning Somerset down that path. Discussions at official level have been taking place for many months between the relevant Department and officers of the county council to prepare the way for that bid. Most elected councillors have been excluded from those discussions. That is the opposite of open government, and it is frequently a way that bad decisions or ideas take root.
	The trigger for the bid was the publication in October of the Government White Paper on the future of local government. It was rather a disappointing document in many respects, but its aim was simplification. In the foreword to the White Paper, the Prime Minister said that it
	"commits the Government to a radical simplification of the existing system",
	but the White Paper's proposals seem to me to be far from simple. There is endless talk of community and partnership and so forth, as though the simple repetition of those words somehow gives them meaning. There is also a bewildering array of initiatives. Each area of the country is to be encouraged to have a local strategic partnership—an LSP—a local area agreement, a sustainable community strategy, a local development framework and probably a multi-area agreement as well, and on top of that a range of regional strategies. That is not simplification; it is completely baffling to the public and shows what happens when the official mind collides with the need for local democracy.
	From that fog of strategies, partnerships and acronyms emerges a pattern of what the Government are pursuing for local government. They are going for big unitary authorities wherever possible, with huge regional authorities above them. They are joined in support for that plan by the Liberal Democrats, who of course like unitary authorities. That is why Somerset Liberal Democrats have applied for it, and it has long been Liberal Democrat policy to go for regional government. A rather unhealthy Lib Dem-Labour coalition is developing to carve up the local government map of England to suit such a structure. When the Minister replies to the debate, I would like her to confirm that that is indeed the strategic aim that is buried in the White Paper. That would be a disaster for Somerset, and the regional structure that we have—that we have to live with—is already highly damaging.
	The south-west region is a completely artificial entity stretching for hundreds of miles from the tip of Cornwall. The South West regional assembly is a self-important talking shop that absorbs a great deal of time and effort but achieves very little. The South West of England Development Agency has shown complete insensitivity to the needs of local businesses in my constituency. The Government should remember what happened to their plan for an elected regional assembly for the north-east, which was crushingly defeated by 78 per cent. in a referendum a few years ago. These big units might look fine from Whitehall, but the public do not like them. Whitehall loves these units because there are fewer people to talk to, it can control them more easily and they look good on a small map of England, but they are the death of local democracy.
	If we want to promote the vitality of local government and to strengthen local democracy, we should be doing the opposite—devolving power to smaller units. Very occasionally in the White Paper, the Government seem to be saying the same thing. With their usual jargon, they talk about "empowering local communities". How can they empower local communities when they are removing the tier of local government—district councils—that is closest to those local communities wanting to be empowered? It is understandable that the Liberal Democrats want to destroy the district councils, because they usually do not control them. In Somerset, they have only one of the five councils. They do temporarily control Somerset county council, which is why they want to concentrate power at county level, but the county council has not earned the right to monopolise local government in Somerset. In my area, I find that Mendip and Sedgemoor district councils are more responsive to my constituency cases.
	Until quite recently, the county council did not even know how many people it employed. It took many years' work by the opposition Conservative group to find out how many people were on the payroll. The number has been going up pretty steeply every year, which is another problem, but the fact that the county council did not know how many people it actually employed shows a degree of ineptitude.
	There have also been a number of fiascos, which we have lived with over the years. We remember the fiasco whereby more than £2 million of ratepayers' money was spent putting up a lot of unnecessary and ugly road signs, which did very little for road safety and had to be taken down again at vast cost. I could go on—there have been many other problems over the years. I am quite tolerant of local government making mistakes, but the county council seems to be very slow in correcting them. Meanwhile, the council tax has gone up every year way above the rate of inflation, and the debt with it. There is a problem for the Government; if the unitary bid succeeds, the county council will be exporting this financial structure of high taxes and high debt to the rest of the county, replacing many of the more prudent district councils.
	Who is going to pay for this reorganisation? The up-front costs are always huge. Staff have to be paid off or relocated, buildings have to be bought and sold, and building leases have to be terminated. There will be bigger salaries and more people employed at the centre. Then there is the cost of preparing the bid itself, which is already diverting officers' and councillors' time away from doing what they are elected and paid to do—to deliver good services to voters. Instead, they are engaged in an expensive and time-consuming bid for unitary status. I should be grateful if the Minister addressed the question of what is going to happen when the costs escalate and the council tax goes up even more, or other services get hit. Is that in line with the ambitions of the White Paper? If not, the Government should stop the bid dead in its tracks.
	Of course, we have been here before. Those of us with long memories remember the Banham commission of the 1990s, which correctly recommended the abolition of Avon, but when it moved on to the part of Somerset that I have been talking about, it got into a most frightful muddle. It first recommended a unitary county structure exactly the same as the one being bid for now. On closer inspection, that was shown to be a mistake, so it changed its mind and recommended a unitary structure based on three smaller units. On yet closer inspection, that proved to be unworkable, as well, and the whole thing was abandoned.
	More recently—the Government should have fresh memories of this—the Government tried a merger of the police forces in the south-west, which again proved unworkable in practice. That, too, has been abandoned. A great many politicians and officials have worked very hard to try to reorganise the south-west, and Somerset in particular, as regards government and the delivery of services, but it just does not work. So I say to the Government: stop this bid now. It is unwelcome, unnecessary and undemocratic. The districts—certainly the ones under Conservative control—are willing to work more closely with each other and the county council to improve services. There is nothing static about local government and it can always be improved, but the solution is not complete revolution in the familiar structure that is recognised and appreciated by most local people.
	I would be very grateful if the Minister answered my final question: who will decide the bid? The invitation to bid document rather coyly says, using the usual jargon, that if it is to succeed, it must be
	"supported by a broad cross-section of partners and stakeholders".
	That is frankly not good enough. It is not the partners and stakeholders who will pay for it all or whose democracy will be undermined; it is the public—the voters—who must decide. In other words, we need a referendum if the issue is to be decided democratically.
	The Deputy Prime Minister said in evidence to a Select Committee when asked about a similar matter:
	"if you want to have a unitary then you can have a ballot, discuss it with the people, but if you want it, fine."
	If we can interpret his slightly mangled syntax, he is promising a referendum. He was then challenged further by my hon. Friend the Member for Mole Valley (Sir Paul Beresford) about what would happen if the people did not want a unitary structure. In reply, the Deputy Prime Minister said:
	"They will vote presumably for that".
	He confirmed that people will have a vote. I presume, therefore, that that is Government policy. The Deputy Prime Minister was not speaking for himself, but for the Government, so unless there has been a change that we have not noticed, the Government are still committed to public votes on unitary status. That must happen, because the whole exercise is not about the powers of politicians, but about serving the public better. We are talking about their local authorities and their counties, so it must be their vote that decides the matter.

David Heath: I congratulate the right hon. Member for Wells (Mr. Heathcoat-Amory) on securing the debate. I had hoped that we would have heard a more reasoned exposition of the arguments for and against reorganisation of local government in Somerset. The people of Somerset certainly deserve a better structured debate than we are likely to have following the introduction from the right hon. Gentleman, who took a somewhat partisan view of the circumstances that obtain in the area. The so-called temporary Liberal Democrat control of the county council has lasted for most of the 22 years since I took control as leader way back in 1985. The right hon. Gentleman seems to wish, forlornly, that his party had control of the county council again, and perhaps he thinks that the reorganisation is one way to achieve that objective. I have to say that he is doomed to disappointment.
	What we should be looking at for Somerset is efficient and effective local government which costs the minimum that is consistent with having proper local accountability. That should be the basis for any model of local government reorganisation. A further and very important factor, in the context of Somerset, is that people do not want to be told that they no longer live in their county. The great mistake that the then Conservative Government made in abolishing part of Somerset and creating the hybrid county of Avon—I remember it well—was to tell people not that their dustbins would in future be collected by a different local authority, but that they no longer lived in the county in which they had grown up and which was part of their cultural and historical heritage. That seems to be an enormous mistake.
	I shall end my opening remarks by saying that the Government have not yet got to grips with one other important factor: the role of parish and town councils. They are the building blocks of local government, and the Government have not set out how they will fit into any structure that they may propose.
	I agree with the right hon. Member for Wells that we have been here before, and I still bear the scars of the Banham review. However, he omitted to say that it was set up by a Conservative Government—in the person of Michael, now Lord, Heseltine—with the express intention of abolishing county councils and introducing unitary authorities in every part of England.
	The Banham committee got to grips with that work, and it shows what a sad person I am that I should have in my office the minutes of Somerset county council committee reports of 20 February 1991. The resolution considered that day was to authorise the committee to formulate and express views on the future structure, function and funding of local government in Somerset on behalf of the county council. That was the starting point for the bid to become a unitary county authority. Who was in power in county hall at the time? The Conservatives were. There has been a complete change of attitude by that party, and one wonders why. Could it be opportunism? I suspect that it might be.
	I turn now to what the Government propose. At the outset, I should tell the House that I have not yet formed a firm view about what would be the right outcome for the people of Somerset. I suspect that decisions about the lines to be drawn on the map should not be made by me, or by the right hon. Member for Wells, or by people in county hall or in the district council chambers. It is for the people of Somerset to decide what is the right answer.
	Moreover, I have significant criticisms of the process in which the Government are engaged. First, the reform is being introduced with reckless speed given that, if it goes ahead, it will affect the way that Somerset is governed for a long time. Secondly, I am very concerned about the lack of consultation. I do not buy the argument that the consultation is with stakeholders. As far as I am concerned, the word "stakeholders" in this context includes every person in the county of Somerset who has a view on the matter. I do not believe that the consultation presently proposed is on that scale.
	My third criticism has to do with the fact that the proposed reform is to be carried out within the current boundaries of the administrative county of Somerset. I shall return to the matter later in my remarks, but the proposal seems to me totally illogical for the governance of the county.
	What is the outcome that we should be looking for? I do not want to prejudge what the structure of local government in Somerset should be or will be, but I insist that we should show respect for one another's views, because no one answer is going to be the right answer. A perfectly strong argument can be made for the present three-tier system. It has the benefit that, while strategic decisions are taken at one level, there is also a much more local district council.
	Yet the structure has both merits and demerits. For instance, people in Somerset pay for six chief executives, and there are six different offices. The right hon. Member for Wells was happy to praise Mendip district council, whose present offices are the most modern in the county. However, they are apparently not sufficient for the council's needs and I understand that it is thinking of building a whole new set. I am not sure that that is justified by the functions that the district council carries out.

Ian Liddell-Grainger: Thank you, Mr. Deputy Speaker, for allowing me to intervene in the debate. The hon. Member for Somerton and Frome (Mr. Heath) makes an interesting point when he asks whether the issue is partisan or bipartisan. The answer is that it is, actually, bipartisan, in so far as the Labour party, a large proportion of the Liberal party and the Conservative party are working together to try to come up with a structure that will do the best that it can for Somerset.
	I certainly agree with both my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for Somerton and Frome that we need strong local government in Somerset. I am deeply offended, however, at the way in which the county council is trying to con the public. Yes, I understand, Mr. Deputy Speaker, that "con" is a rude word, but so are a lot of things and I wonder what would be appropriate. Somerset says that going unitary will save everybody money, but have those who say that actually done the sums? Have they heck! The only arithmetic that they quote was produced, believe it or not, by Shropshire county council.
	Mrs. Cathy Bakewell—I apologise, Councillor Cathy Bakewell—the leader of Somerset county council says that Shropshire will save more than £36 million in four years if it goes unitary. But, with all the morals of a fast-talking brush salesman, she conveniently forgets to point out that Shropshire will also spend £3 million on restructuring and end up with 182 job losses. The population of Somerset is 80 per cent. greater than that of Shropshire—even 70 per cent. greater than that of Northumberland, which we all know is a large county. I dread to think how many jobs will be lost in the five district councils given all the add-ons that will happen if this barmy idea goes through.
	Let me tell you, Mr. Deputy Speaker, and the Minister, that the unions are against it. Amicus and other unions, including the trade union council headed by one of my constituents, Mr. Dave Chappel, have made it very clear that they are opposed to it, and so has Unison, as I am sure the Minister knows well. They oppose it not because of job losses, but because they know it will not work.
	I quiver in my boots at the cost of actually satisfying La Bakewell's insatiable power. It is time to realise that that lady is conning us all.
	Shropshire county council happens to be Conservative controlled, but with one district and one borough beneath it—that is all. In other words, it does not compare in any way or form to Somerset county. More to the point, Shropshire is totally united. All three councils want to amalgamate, and all three have done their arithmetic and—surprise, surprise—have made it public. But back to Taunton we go: Councillor Bakewell's barmy army, which is rooting for the losing side—how pithy that is at the moment—needs a calculator, and it is making enemies all round. Every district council in the county—including South Somerset, which was alluded to by the hon. Member for Somerton and Frome—thinks that the plan is barking.
	There are so many unanswered questions, and both my right hon. Friend the Member for Wells and the hon. Gentleman have alluded to that fact. What will happen to the parish council in Bakewell's brave new world? Will they go up; will they go down; or will they go sideways? Will they get extra power? Will they? The silence, as usual, is deafening. What about all the real estate? Again, as has been suggested, if the district councils are flushed away, who will benefit from the sale of their offices? If that is a sensible business, I suspect that those involved will have done their calculations and worked out the answers already.
	Let us face it, Somerset is not a sensible business. Somerset already behaves like a crackpot, spend, spend, spend lottery winner. It is wasteful, greedy and completely inefficient. It is millions in the red, but who cares? Let us remember the rumpus over the road signs that has been alluded to. Somerset council invented the so-called speed management scheme, saying that it would save lives. Unfortunately, it did not. But the council did not consult anyone, least of all the police—a good starting point one would think.
	The first that people in Somerset knew about the scheme was when a load of muscular men from the county council turned up and started hammering in new road signs everywhere—thousands of them. In one village in my constituency, the signs said that drivers should go from 60 mph to 50, down to 20 and back up again in under a mile—remarkable. Even Michael Schumacher would be proud of that. Our country roads were littered with new metal signs. Even the national park glittered in the sunlight of that glow. But, eventually, even the county council realised that it might be a good idea to ask people what they thought. So people told it, and the silly signs were removed. Unfortunately, £2.5 million has been spent—wasted. What a fiasco!
	Now we have the small matter of windmills. Renewable energy is marvellous, so one cannot complain. My party leader is sticking one on his roof, so they must be all right. But Somerset county council believes that the divine right is to save the planet: forward and upwards, onward Christian soldiers. So Bakewell's blunderings now include building a forest of those things over the county farms and across Glastonbury tor. Every hon. Member knows the tor—it is the home of Avalon and allegedly the birthplace and burial place of Arthur—and the council wants to stick windmills on the top. Great—that will go down well at Glastonbury festival. The council also wants to put them on the Quantocks, which is the first area of outstanding natural beauty, and it is not going to work. To let the Minister know, the council is talking about putting them near schools in my constituency along the M5. What do people think? We have never been asked. We do not know.
	There are other examples. There has been a massive change in special needs teaching in Somerset, as my right hon. Friend and the hon. Gentleman know, and it has not been for the better. In West Somerset—the most rural district in England, into which London would fit very comfortably—that role has been cut: £80,000 has been taken away. Children now have to travel for an hour to go Taunton or Bridgwater to get special needs teaching. The county never asked anyone about that. It said that it was going to happen. We are being offered a team in two year's time—I can hardly wait—and I wonder whether those involved know where West Somerset is. We wait with bated breath, and yet again, we are quivering in our boots.
	Things got even better. Just after I became the MP—I took over from Lord King—the county council said, "In line with Government proposals, we are going to get rid of all the schools in Sedgemoor. We are going to have three super-schools. So you go in as a kiddy and you come out as an adult. We will do it all the way through." The council did not ask anyone in Sedgemoor. It thought that that did not matter; it thought, "They will love it." Every school rebelled, but that did not matter. "Onward and upward, utopia!" was the cry. Luckily, the Minister's former colleague Mr. Stephen Twigg, who is no longer in the House, said, "This is mad. It is ridiculous." He stopped the process dead in its tracks because there was no consultation. There was no feeling of hopefulness.
	That is now happening again. The plan is to get rid of four colleges and turn them into three. Three of our colleges have more than 1,000 pupils. One college has about 700. It is planned to turn those into three colleges of 900. I am not great at maths, but even I can work out that that does not work. Nobody has been asked about that. It is going to be done—again. There is no consultation. The people I am talking do not think, they cannot count and they simply drone on.
	Councillor Bakewell is the queen bee of a horrendous hive of profligacy. She flaps her wings and pops from flower to flower, like a diva at a comic opera. It is worrying. I suspect that, dare I say it, she can no longer tell the difference between what is right and what is wrong. Her administration is an unhealthy mixture of polyunsaturated policy and political pomposity. She has become the turkey twizzler of England's town halls. Jamie Oliver would not be proud.
	This is a dangerous diversion for democracy. The Government's White Paper unfortunately leaves out much that should be said. A lot of it is like a blank piece of paper. Frankly, I would not trust the county council with it if it were a fly paper, never mind anything else. I now fear that this dangerous lady's application for unitary status is pure municipal genitalia measurement. They want it to be bigger just for the sake of it. Have hon. Members ever noticed how many small people drive large cars? It is as though the six cylinders under the bonnet compensate for the lack elsewhere. Is it a case of today Somerset, tomorrow the world?
	With the logic of a Dalek, Mrs. Bakewell wheels round like a dustbin shouting, "Exterminate, exterminate!" I have not done much research into the Daleks, but I know that they wanted to take over the galaxy as quickly as possible. However, despite their threatening appearance, they were constructed out of cardboard with wheels on the bottom and sink plungers for arms. The Daleks, like Mrs. B, had ideas way above their station.
	So where on earth is the woolly-headed idea going to end up? Could the chief executive of Somerset county council be to blame? Perhaps he has been conducting long late-night sessions with some of the staff to emphasise what they are going to do. I have no idea. Changing local government is a serious process. It is always messy and pricey. It must never be undertaken just because council top dogs have an over-inflated opinion of themselves and what they can achieve.
	I invite the House to look back. Both my right hon. Friend the Member for Wells and the hon. Member for Somerton and Frome talked eloquently about the Banham report. Yes, it was set up by a Conservative Government. Yes, they wanted to look at the way that local government could be changed. Yes, they wanted to see whether it could be streamlined. However, Banham did his work well. He took one look at Somerset and said that it could not be one unitary authority. It is too big. It cannot be done. Banham was right; Bakewell is wrong. Big is not best. Big is out of touch and out of tune. Big, when it comes to local government, is very bad indeed.
	My message to the House and to Ministers is brutally straightforward. If they want chaos, anger, rising costs, uncertainty, worry, and a lack of understanding and clarity, fine—let them get on with it. But the price for the community—the community is what matters—will be unbearable. Democracy in the county will be damaged badly. I cannot agree with the hon. Member for Somerton and Frome when he says that there are too many in local government. My experiences of dealing with the few county councillors that I have now can be frustrating because, like us, they deal with a big area and they cannot always know what is going on. District councillors do know what is going on.

Meg Munn: I shall be happy to provide the hon. Gentleman with any information that my Department has on meetings in his area, after the debate.
	As I was saying, in some areas there is real determination to make the system work, but people have also told us that they find the current system confusing, inefficient and ineffective. To take a small example, maintaining grass verges might be a matter for the parish council, but keeping the pavement clean might be the responsibility of district councils, and keeping the road clean might be up to the county council. The Government's response to such difficulties is to allow restructuring. There is no doubt but that there are risks and challenges for two-tier structures. There is the risk of confusion, duplication and inefficiency between the tiers, and there are challenges for small districts with small budgets and restricted boundaries that do not reflect social and economic patterns in the area.
	We know that many councils are working hard to overcome those risks and challenges, but it is important for councils in all two-tier areas to consider new ways of working. In some areas, there is a widely held view that moving to a unitary structure would be the best way of dealing with the risks and challenges. That would improve accountability and create stronger, more focused leadership. It would improve efficiency and, most importantly of all, it would improve outcomes for local people. In those areas, people have the opportunity, until 25 January, to give us proposals for unitary local government, and we expect to receive a small number of proposals that meet the criteria. That will not be the best route for everyone, but we expect the same outcomes, and the same level of efficiency gains, for areas and their citizens, regardless of whether councils choose the unitary route, or look to make improvements in the two-tier structure by providing stronger leadership and better co-ordinated services, and by making efficiencies through integrated service delivery and the sharing of back-office functions.
	For all areas continuing with two tiers, there will be significant change. We are asking all principal councils in those counties committed to aiming for an improved and innovative two-tier approach to act as pathfinders. The aims of the two-tier model pioneered by the pathfinders should be the same as the outcomes that can be achieved by a move to unitary structures. They include unified service delivery, so that there is no need for service users to understand whether the country, district or, indeed, other service provider is responsible; stronger leadership; effective accountability arrangements, so that people know who is responsible for which decision; shared back-office functions; and integrated service delivery. We are seeking new ways of working between the tiers, and we are asking for outline proposals by 25 January, after which we will designate pathfinders to develop the proposal.
	The pathfinders will be subject to evaluation at intervals—perhaps after two, four or six years. To achieve a proper comparison, we will make a similar evaluation of new unitaries. Until that is complete and we have the results, we do not intend to instigate change again. Proposals for unitary structures must be in accordance with the terms of the invitation. In submitting a proposal, councils must have regard to the guidance in the invitation that states that proposals should be presented in the form of a business case with a supporting financial framework. Until we have received and considered the bids, I hope that the right hon. Member for Wells (Mr. Heathcoat-Amory), and the hon. Members for Bridgwater (Mr. Liddell-Grainger) and for Somerton and Frome (Mr. Heath) appreciate that it is inappropriate for me to comment on the merits or otherwise of any particular proposal.
	I can, however, say something about the criteria that will be used to assess proposals. They must be affordable. Change must represent value for money, and it must be met from councils' existing resources. Bids must be supported by a broad cross-section of partners and stakeholders, service users and citizens. We will consider whether proposals provide strong, effective and accountable strategic leadership; and whether they deliver genuine opportunities for neighbourhood flexibility and empowerment, as well as value for money and equity in public services.